An important document called the Inter-American Democratic Charter deserves new attention. In it, 34 nations from North, South, and Central America acknowledge the essentials of democracy and commit to put them into practice. That the document upholds vital principles is obvious. Less so is the largely forgotten misfortune of its timing.
The charter grew out of work begun during the Summit of the Americas in Quebec City early in 2001. The effort profited from a foreign policy emphasis on the Western Hemisphere by the then-new administration of US President George W. Bush. It sought to align politics of the Americas with such righteous ideals as democracy, economic prosperity, and spread of benefits from globalization.
Through no fault of anyone involved, the initiative lapsed into obscurity. The date on the Inter-American Democratic Charter, the most important achievement so far, tells why. It's Sept. 11, 2001.
Priority shift
Administration officials point out that work never ceased on the Western Hemisphere project and that progress is steady. But the administration's foreign policy apparatus is clearly distracted by the struggle against terrorism and the possibility of military action against Iraq. The priority shifted at Latin America's expense.
While terrorism and Iraq certainly deserve urgent attention, stature of the Americas program needs rejuvenation. Especially in Latin America, important countries confront fateful political and economic problems that they won't solve on their own. Their successes and failures directly affect energy companies working in the region.
A debt crisis and political uncertainty destabilize Brazil. A failed presidency and power contest bring Venezuela, once again, nearly to revolt. Argentina struggles in the wake of economic collapse with important elections less than a year away. Colombia contends with chronic rebellion. Political infighting and an economic lull slow Mexico's progress toward political and economic reform.
Economically, Latin America is performing worse now than at any time in nearly 2 decades, points out Michael Mussa, senior fellow at the Institute for International Economics and former economist at the International Monetary Fund. Real gross domestic product, he told a Senate subcommittee last month, likely will drop by 2% this year.
Mussa blames "domestic weaknesses and vulnerabilities" exacerbated by external developments such as the global economic slowdown. And he says Latin America's largely internal problems have been aggravated by "confusion and inconsistency in the policies of the US government and of the official international community—particularly the (IMF)." For example, while its officials have spoken out against large bailouts for developing countries in financial distress, the US has in fact expanded support packages for a number of countries, including several in Latin America.
Countries need clarification of the conditions under which international aid will be available. As Mussa stresses, however, Latin Americans bear most of the responsibility for "managing the present difficulties, reducing the likelihood of their recurrence, and laying the foundation for a more prosperous future."
For energy companies working in Latin America, the stakes are large. Alejandro Bertuol of Fitch Ratings says in a recent report that even in countries that have deregulated and privatized their energy industries, corporate credit risk can't be severed from underlying sovereign risks. "Experience shows that in times of extreme stress the sovereign's ability to expropriate value from private companies is substantial," he says. Except for Chile and Mexico, sovereign credit ratings in Latin America are poor and generally worsening.
The core challenge in Latin America, Bertuol says, "is one of system credibility." The region offers attractive investment opportunities but raises tough questions: "Will investors/sponsors believe that the region's energy potential will translate into attractive returns? Will policy-makers implement the necessary frameworks to reassure potential sponsors, particularly with the more complicated value-chain investments? How will Latin America compete with energy-related investment opportunities in West Africa, the former Soviet Union, and the Middle East?"
New push
The ultimate question raised by Bertuol, which economic and political circumstances are pressing countries to address, is this: "Will Latin American governments take the necessary steps to make their volatile environments more attractive?"
Among all possible steps, none would address volatility better than action on principles en- shrined in the Inter-American Democratic Charter. The time is right for a new push, and new support, from the US and other countries with which Latin America shares a hemisphere.
